Find a market need and fill it. Then scale up the business so it can grow much larger. Sounds like a recipe for success. But, there is still an unanswered question. Will it last?
We are reminded of this in the March 26-27, 2022 issue of the Wall Street Journal, where there was an obituary for John V. Roach, who was an executive at Tandy Corporation, the company that owned Radio Shack, a retailer of electronics products. Roach was involved with the introduction of Radio Shack’s personal computer back in the days when that market was just emerging. The Wall Street Journal points out that Charles Tandy, Tandy’s Chairman, didn’t necessarily think the proposed Radio Shack PC would sell. According to the Wall Street Journal, “Roach later recalled Mr. Tandy saying ‘Build 1000 of them and if we can’t sell them we will use them in the store for something’.” As the Journal explains, however, Radio Shack’s PC sold very well. The company found it hard to keep up the huge demand and sales “eventually topped 2.4 million units.”
This sounds like a tremendous success. And, for a while it was. But, Radio Shack’s success with PCs did not last. As the Wall Street Journal explained, Radio shack did very well as an early entrant to the market, but it fared more poorly later as the market expanded after the IBM PC came out.
As I see it, a key difficulty for Radio Shack was that the company had mainly been a retailer when it introduced its computer. This background was fine in the early days when the PC served more of an early adopter consumer market. The Wall Street Journal says, “They did well in the education market as parents feared children might be left behind without them.” As PCs were more often used in larger businesses, especially in huge companies, the market favored vendors more oriented toward servicing large corporate accounts that expected the industry standard. And, as the Journal points out “the machines became standardized and profit margins shrank. Tandy was slow to make its early computers compatible with popular software.”
As I see it, when serving a booming new unmet market need, it’s worthwhile for businesses to think through whether success early on is likely to last. Companies need to assess whether they have what it takes to compete as the market expands to include many customers whose needs differ markedly from what the early entrant had been offering. In this situation, companies must either be prepared to broaden their scope to meet the needs of the expanded market, or should think about planning their exit strategy after a short-lived success unless they can identify smaller niches where they have the expertise to dominate. Or, they need to develop a transition strategy that lets them build on their initial success in some way while they pivot to something else compatible with their strengths.
After all, Radio Shack was not the only company to experience a “did not last’ situation after filling a newly identified market need. But, as Radio Shack’s situation illustrates, filling an emerging market need and scaling it up doesn’t always last.